Statement by the Systemic Risk Council on Bank Capital Requirements

Contact: Jeremy Ratner, jratner@pewtrusts.org, (202)540-6507

Washington , D.C. – 12/07/2012 - Sheila Bair, former chair of the FDIC and current chair of the Systemic Risk Council (SRC) issued the following statement on the Council’s behalf in advance of today’s Senate Banking Committee Hearing “Oversight of Basel III”:

“While we commend the financial agencies for seeking public comment on important rules that raise the overall level of capital required for large, complex financial institutions, we have strong concerns about regulators’ continued willingness to allow these giant institutions to use their own internal risk models to lower their minimum required regulatory capital. Not only do models routinely fail in a crisis (precisely when we need loss absorbing shareholder equity most) – their use for regulatory capital purposes can create perverse incentives for risk management and real competitive advantages for larger firms relative to smaller firms doing the same activity.”

“Minimum risk-based capital requirements should be just that: a minimum. If internal models identify additional risks that require higher capital, firms should be required to raise more equity. Management, boards, examiners, investors and counterparties deserve an objective and clear minimum risk-based capital baseline.”

“To get the necessary capital in place quickly, the SRC has encouraged the regulators to prioritize implementing Basel III for the large, internationally active banks, while at the same time strengthening the Basel III leverage ratio by raising it to 8 percent.”

“It is important for the US to exercise global leadership. Strong capital requirements are a competitive strength, not weakness, and essential to system stability.”

The independent, non-partisan Systemic Risk Council was formed by CFA Institute and the Pew Charitable Trusts to monitor and encourage regulatory reform of U.S. capital markets focused on systemic risk. The statements, documents and recommendations of the private sector, volunteer Council do not necessarily represent the views of the supporting organizations.

The Council works collaboratively to seek agreement on all recommendations. This report fairly reflects the consensus views of the Council, but does not bind individual members.

Affiliations are for identification purposes only. SRC members participated as individuals; the statement reflects their own views and not those of organizations with which they are affiliated.